Competitive Positioning of Thorntons Market - Case Study Example

Thorntons Introduction and Company background Thorntons is a famous chocolate company based in England. It was established in the year 1911 by JosephWilliam Thronton as a family business. At present the business boasts around 400 shops as well as more than 180 franchises couples with mail order, internet and commercial services (Thorntons, 2014b). Apart from confectionaries, Throntons also distributes fudge and toffee, the latest segment being candies. Bulk of its global sales comes from Swiss, Continental and Belgian chocolate ranges. The company employs just around 4000 employees and Mike Davies is the current chief executive (Thorntons, 2014b). The objective of the current report is to analyze the competitive positioning of Thornton’s market. The competitive positioning will look into factors such as differentiation, pricing, value offerings and focus. An analysis of competitive positioning will further help in evaluating the sustainability of current strategies of the chocolate company given the stiff competition in United Kingdom. UK Chocolate market Chocolate is a highly indulgent category, inviting customers from every segment. Chocolates are sold in various forms and packaging. They are sold with interesting textures as well as different ingredients such as nougat and caramel, with the objective of complimenting the content of the chocolate. In order to understand the competitive positioning of Thornton’s chocolate products in UK, it is import to know about the various sub-sectors of chocolate market. Countlines take the biggest share of chocolate market. These are wrapped chocolates consumed by one person. Kit Kat dominated this sector. Next are moulded bars which are packaged as segments or slabs and can be shared. Boxed chocolates mainly consist of gifts during events and occasions. Other sub-categories include seasoned products and bagged selflines (Addy, 2013). Thornton strategy clock In order to understand the competitive positioning of Thorntons, theory of strategy clock has been applied. Open markets such as chocolate markets are filled with competitors, big and small as well as branded and unbranded. They offer products which are almost similar and customers have several options to choose. In such situations, firms try to achieve competitive advantage by giving customers something extra. According to Michael Porter product differentiation, cost differentiations as well as market segmentation are three broad categories which can be used by companies to gain competitive advantage. The strategy clock was developed by David Faulkner and Cliff Bowman in the year 1996, and it is an extension of Porter’s general strategy, providing further analysis (Faulkner and Bowman, 1995). Here the three broad strategies are further divided into eight positions representing a unique combination of perceived value and cost. Business and organisations face competitive situations where consumers make choice based on their awareness of value-for-money, combination perceived service/products benefits and pricing. Strategy clock presents different market positions where current and potential consumers showcase different demands and needs. These differentiations can also be described as generic strategy sets which help the organisations in achieving sustainable competitive advantage. The strategy clock also helps in acknowledging the critical influence of pricing strategy as well as costs to organisations, especially costs lost to competitors (David, 2012). The first and second strategies are basically price based strategy. They are targeted towards customers who are price sensitive but opt for services and products satisfying their threshold demands. Some of Thorntons’ products fall in these categories. These are basically to attract one time or occasional buyers. Pricing strategies is best implemented in commodity market. Since, customers are in general, not loyal to low priced brands, it is best to transfer the products into commodity and opt for high distribution. Other major strategy followed by Thorntons is Hybrid strategy, offering products with medium quality and medium price, but positioning them as better than competitors. This competitive positioning is achieved through better operations and effective marketing strategies. Since hybrid strategy is one of the majorly followed strategy for companies having numerous product portfolios, Thorntons have rightly placed few of its products under this category. Differentiation strategy forms another major strategy for competitive positioning of the chocolate maker’s products. Broad and focussed differentiation strategies helped the firm in establishing itself at a qualitative brand and enhanced its overall brand reputation. Strategy 1: Low value and low pricing strategy This strategy is followed while offering low quality products or services at lowest market price. This strategy is generally avoided as there is no product loyalty and switching is high. Also, the low quality diminished the overall brand’s reputation. It is generally followed in situations when the product is under pressure due to low pricing strategy of competitors (Thompson and Martin, 2005). In this case companies are unable to overcome or avoid price wars by offering differentiated products. However, the market is filled with many customers who are price sensitive and deliberately choose low quality products. The chocolate bars and candies of Thorntons fall in this section. The bars and candies are manufactured is high amount and are distributed and sold vigorously, compensating for the minimum pricing strategy. Even though the high volume captures some of the revenues, low quality would indicate single usage and non-relevant repeat purchase volume. Low price and low quality strategy should be implemented for only those products with minimum life cycle. The chocolate brand caters to various demographic segments. Chocolate bars and candies are also a strategic segment to target one time and instant buyers. Thus the company has to ensure that it operated under a low cost strategy without getting influenced by the competitor’s pricing strategies. The major objective of the above strategy as implemented by Thorntons is to achieve and maintain lowest prices on its selected product categories and at the same time ensure that benefits are generated from these products. However, the major disadvantage of this competitive positioning strategy is that it can be easily imitated by rival brands i short span reducing the market share as well as profits. A reduction in revenues and profit margin will further result in reduced re-investment opportunities (Faulkner and Bowman, 1995). In order to keep the brands in this category alive and productive, Thorntons keep changing the packaging designs and introduces offers and discounts to attract customers. This strategy also helps in collecting revenues from non-buyers. Strategy 2: Low price Low pricing strategy is implemented when a company wants to position their services or products in lowest possible prices triggering price wars. However, implementing this strategy is possible only when companies are having enough resources to sacrifice current profits for reputation and brand building. As present, Thorntons is suffering from losses due to sleek economy and does not cater any product in this segment. Strategy 3: Hybrid Hybrid positioning strategy is followed through a moderate value-moderate price approach. Here the company neither offers highest quality nor lowest price. Rather, the company tries to balance the quality and price as well as establish reputation of offering products at fair prices with reasonable and realistic qualities. The strategy works by creating a perception that the company’s products are better in terms of quality compared to products of competitors. It can also be said that differentiation is achieved through a low pricing strategy (Bowman and Faulkner, 1997). The products Thorntons following the hybrid strategy include milk chocolates, white chocolates and special Fudge and toffee. Through the products offered are common and are produced by almost all competitors, Thornton’s uses a hybrid strategy to generate demand for its products. Even though the products are placed slightly higher compared to similar other products available at the counter, the company has strategically placed these product categories to target price-sensitive customers. The products are generally distributed through departmental stores and supermarkets, hitting exact customer segments. In this strategy, cost reductions occur, but in activities other than product differentiation, such as product ranges, store operations, logistics and marketing. Thus, differentiation is achieved through operational efficiencies. By controlling the space of majority of supermarkets and departmental stores in UK, the chocolate company successfully generates greater volume sales compared to its major competitors. Strategy 4: Differentiation strategy Differentiation strategy involves offering products of high value. These products are either sold at high price in order to compensate for low volume sales, or at lower prices with the objective of bigger market share and subsequent compensation for low margins (Lynch, 2009). Companies can achieve differentiation tough various strategies. Some of them include enhancing core products or services by adding new features or offerings, unique branding of the services or product communicating the unique features of services and products and implementing innovative and technology supplemented distribution strategies. It has been seen that in order to generate positive brand recognition, companies follow broad differentiation strategy. For instance, Thorntons have categories few of its products in this category in order to establish itself as a qualitative brand. Also, brands which are well established and positively perceived in terms of quality are easily able to pursue this differentiation strategy. Chocolates without added sugars, dark chocolates, chocolate classics and truffles fall in this category. All of the above products fall in premium category. The chocolate company has strategically targeted its customers for this category, which includes middle to high income families. Identification of key competitors is another important factor responsible for success of differentiation strategy. Thornton’s key competitors include both established confectionaries such as Cadbury as well as local brands selling at lower margins. The differentiation strategies for the above categories were in terms of taste, packaging, high price positioning and advertising strategies. However, one major disadvantage of differentiation strategy is that price-sensitive consumers might reject the products, even if they are placed as higher quality compared to competitors (Bowman, 1998). Slump in economy and negative market sentiments might trigger customers to opt for products which are perceived as low-priced and affordable, hampering the sales and revenue. The overall success of differentiation also depends how imitable the product or service is. A company is said to have established competitive and sustainable differentiation if its services or products are difficult to imitate. Strategy 5: Focussed differentiation strategy Focussed differentiation strategy helps in establishing high perceived service or product benefits as well as justifying a high increase in premium pricing to a selected segment of market generally termed as niche segment. These are generally heavily branded premium products or niche products available with a higher price margins. According to Baden-Fuller and Stopford (1999), focussed differentiation strategy is high pricing teamed with high quality or differentiated service benefits which are highly values by customers. Thorntons focussed differentiation strategy is based on clear understanding regarding its competitors and customers and exact knowledge of the demands and requirements of its niche market. For instance, the company’s sales during Christmas were low compared to its competitors. The chocolate maker underwent ground research in order to understand the reasons behind low sales (Thorntons, 2014a). It was a lack of differentiation as well as low focus on the niche but high value customers that resulted in low sales. In order to counteract the effect, the company went on to manufacture specially designed chocolates, such as owls, teddy bears and dolls among others. The above products quickly gained popularity and became hugely successful. At present Thorntons focussed differentiation strategy involves box chocolates, chocolate models, chocolates without added sugar, continental chocolates as well as mint chocolates. While box chocolates are majorly distributed during special occasions and festivals. The company understood that customers are ready to pay a premium price for services or products which are perceived as valuable. Keeping a constant tract of the competitor’s activities, such as positioning strategies, new product launches as well as pricing strategy has helped Thorntons in quickly reacting to changing customer values and demands (Dess, Lumpkin and Covin, 1997). For example, the company is established strong control over the distribution of Belgium, Swiss and Continental chocolates brands catering to major markets across globe and gaining competitive advantage. However, competition is also most fierce in this category. For instance, the company faces tough competition from Elizabeth Shaw, which frequently chances its design, packaging strategies and even tastes in order to attract niche segments. Competition also comes from standalone retailers such as Marks and Spencer which have started selling their own brands of boxed chocolates, decreasing the revenue shares from modern trade. Sustainability of Thorntons Strategy Given its Competition in the UK The strategy clock clearly indicates that competition has become intense and the UK market is increasingly being filled with new brands, taking away market share. The company is suffering few major issues affecting its overall strategies in UK market. Following recession and a major slump in economy, Thorntons had to close down many of its non-forming stores though it helped in cost savings, the company suffered negative publicity from customers as well as media. Majority of the chocolate maker’s products are placed in premium category, which might create huge problems in future, especially if the economy continues to fall. As a result, the company should start focussing on its commercial products, such as those falling in low and medium prices categories. At present, majority of Thorntons’ products are sold through hypermarkets and big departmental stores. This reduces the target customer demographics to a huge volume. In order to expand its base of customers and establish Thorntons products in the commercial market, the company should focus on retailers, confectionary shops as well as online medium. Other sustainable strategy which the company has followed is cutting its operational costs in order to cope up with the rising prices of raw materials, especially cocoa. This has been achieved by reducing weights of the products while keeping the pricing and reducing the overall costs of packaging (Bowman, 1998). UK chocolate market is filled with fierce competition. Major competitors of Thorntons include Kraft Foods and Nestle. In order to achieve sustainable competitive advantage, innovation is considered as a key factor. In case of chocolates and confectionaries, innovations will include differentiated tastes, high quality chocolates, effective distribution as well as creative advertising strategies. The company has successfully achieved innovations through its differentiation strategies. For instance, the chocolate models and mint chocolates are highly popular among Thorntons’ target customers. However, there are still areas such as distribution, new market and new product developed opportunities that are widely untapped. The UK chocolate market is increasingly becoming saturated with similar developed in chocolate qualities and tastes. In order to tap this opportunity, Thorntons can launch new product variants mixing various chocolates and other ingredients (Finch, 2001). New markets can be penetrated for distribution of Thorntons’s established products. Huge opportunities lie with emerging markets such as Asia, Africa and Middle East. The sustainability of low value and low pricing strategies is in question as low profit margins and high cost of operation can result in overall loss of profitability. It can also affect the revenue and investment opportunities of other brands. The best solution for Thorntons in this competitive era should be to focus on its best selling products and brands as well as removing those product portfolios which are either mature or in the dying phase of product cycle. Reference list Addy, R., 2013. Thorntons claims record production levels. [online] Available at: [Accessed 14 March 2014]. Baden-Fuller, C. and Stopford, J.V., 1999. Rejuvenating the Mature Business, 2nd Edition, Andover Hants: Thomson Learning Bowman, C. and Faulkner, D., 1997. Competitive and Corporate Strategy. London: Irwin. Bowman, C., 1998. Strategy in Practice. Harlow: FT Prentice Hall David, F., 2012. Strategic Management. New Jersey: Pearson Higher Education Dess, G. G., Lumpkin, G. L. and Covin, J., 1997. Entrepreneurial Strategy Making and Firm Performance: Tests of Contingency and Configurationally Models, Strategic Management Journal, 18(9), pp. 677-695 Faulkner, D. and Bowman, C., 1995. The Essence of Competitive Strategy. Harlow: Prentice Hall. Finch, J., 2001. Thorntons new recipe. [online] Available at: [Accessed 14 March 2014]. Lynch, R., 2009. Strategic Management. Upper Saddle River, N.J: Pearson Prentice Hall Thompson J.L. and Martin, F., 2005. Strategic Management; Awareness and Change, 5th Revised Edition, Andover Hants: Thomson Learning Thorntons, 2014a. Christmas Models. [online] Available at: [Accessed 14 March 2014]. Thorntons, 2014b. 100 Years of Thorntons. [online] Available at: [Accessed 14 March 2014]. Read More